The Guardianreports that Apple is working on a new high-definition audio format to adapt to bandwidth or hardware capabilities. Presumably, Apple will leverage the new format to distribute high-fidelity music through iTunes and perhaps upgrade the iTunes Match service that currently provides matched songs in 256Kbps AAC format.

It is believed the new audio format would intelligently adjust itself to the bandwidth and storage available on the receiving device. Such a description also gives hope that an iTunes music streaming service, which is akin to Spotify and based on Apple’s Lala acquisition, could be in the works.

According to “a source with inside knowledge of the process,” the Cupertino, Calif.-based company is working with a London studio to prep existing audio files for the new format. An anonymous source told the paper:

All of a sudden, all your audio from iTunes is in HD rather than AAC. Users wouldn’t have to touch a thing – their library will improve in an instant.

Apple’s annual iPod refresh that usually takes place in fall could be a fitting venue to announce the new high-fidelity format. Another possibility is the forthcoming iPad 3 event rumored to take place March 7.

You will remember that Apple recently rolled out iTunes Match in Japan and enabled the new Mastered for iTunes section in the iTunes Store populated with albums “specially tuned for higher fidelity sound.”Ars Technicaexplained in its trademark exhaustive style that “higher-fidelity sound” means 96kHz audio samples in 24-bit precision—a huge improvement in sound quality compared to CDs containing digital audio mixed down to 16-bit precision and sampled at 44.1KHz. According to Apple, keeping highest-quality masters on iTunes servers is a bulletproof way of improving audio quality on iTunes as soon as technology and Internet bandwidth catch up. Eagle-eyed readers could also point to a Neil Young interview revealing Steve Jobs was working on a high-fidelity music service because he wanted to bring the richness of the vinyl sound to digital tracks.